If you are someone who has peeked into the world of cryptocurrency you must have heard the term Altcoin being talked about here and there.
Have you ever wondered what an Altcoin is and what it does? Well, here is your complete guide to understanding what an Altcoin is and what it does in the crypto world.
What are Altcoins?
Altcoin or alternate coin is an umbrella term used to identify any cryptocurrency coin that is not Bitcoin. They got their name when these coins were introduced as an alternative to Bitcoin.
Altcoins can be of different types when accounting for several factors such as their features, use cases, utility value, and so on. These factors give the coin further basis for classification such as meme coins, stablecoins, governance tokens, and utility coins. A few of the most popular altcoins are Ethereum, Solana, Dogecoin, and Binance coin.
It is to be noted that these mentioned altcoins also differ from each other based on the factors, as mentioned above.
What are the different kinds of Altcoins?
Let us now discuss some of the different kinds of Altcoins that exist in the markets right now.
Stablecoins
Stablecoins are cryptocurrencies whose value is pegged to a physical asset. This is what keeps the price of stablecoins stable.
The nature of the asset to which the stablecoin is linked can vary. The backing asset can be a fiat currency, commodity, or another cryptocurrency.
There are also algorithmic stablecoins whose prices are stable due to being regulated by an algorithm based on the market demand.
An example of a famous Stablecoin is the USDC which is pegged to the US dollar. This means that one USDC is designed to always have a value equivalent to that of a single dollar. This is one of the reasons why the USDC is one of the traded pairs in the crypto market.
Memecoins
Memecoins are cryptocurrencies that often get their inspiration from internet memes or trends. These kinds of altcoins are not linked to any assets in real life. Their value comes from the attention that they get from the people.
Memecoins are highly risky forms of investment but they have gained a lot of popularity in recent years due to the high returns that they bring whenever one of the coins gets into the spotlight or goes viral on the internet.
Memecoins, unlike many other digital assets, may not even be limited in their market supply and can be produced without any limitations. They may not even be controlled by the demand and supply aspects that usually determine the price of a coin.
An example of such a coin is Dogecoin. The wildly popular coin which was once considered as part of a joke has been one of the highest return reaping memecoin in the market.
What made this accomplishment even weirder is that there is no specific limit to how much Dogecoin there can be in the market at a particular time.
Utility Tokens
Utility tokens are cryptocurrency coins that are based on a particular blockchain. These tokens fulfill a specific use and offer a form of utility value to their owner.
These kinds of tokens are not considered financial instruments and thus aren’t subjected to the same kind of regulations as other securities. Utility tokens are issued by the project team that has control of a network, app, or even a blockchain.
These issued tokens are usually purchased through Initial Coin Offerings (ICO), Initial Dex Offerings (IDO), or Initial Exchange Offerings (IEO). These token offerings are used to raise funds to run the network or for further development initiatives of the project group.
The person who buys the token from a project will be given some form of utility or rights over the platform or network developed by the issuing project.
These tokens are also issued as rewards for completing tasks in the network or providing services. The utility tokens can also be used to pay for the expenses that occur in the network.
An example of a popular Utility token is the Basic Attention Token otherwise known as BAT. BAT tokens are issued as a reward to users who sign up to watch ads in the Brave browser.
The BAT token can be used to buy skins or make customizations on items within the Brave browser’s ecosystem. Similarly, a token such as ether works as the utility token of the Ethereum network.
Governance Tokens
Tokens that allow a coin holder to vote or take part in the decision-making process for a cryptocurrency project are known as governance tokens. To ensure that decisions are made in a decentralized way, these tokens are essential.
Governance tokens are seen as widely used in many decentralized finance (DeFi) projects and Decentralized autonomous organizations (DAOs). Examples of Governance tokens include Uniswap DAO, Curve DAO, MKR, etc.
Security Tokens
Security tokens are essentially the digitalized form of traditional assets. Security tokens are used to represent the transference of ownership of a property from one entity to another.
The process through which a physical asset is digitized and converted into security tokens is called by the name tokenization.
Security tokens can be based on the value of an asset or they can be based on any of the debt instruments associated with that property.
The terms and conditions that are related to the benefits that a security coin holder gets are determined by the owner of the physical asset and the tokenizing group.
Security tokens may at times offer their user incentive like monthly interest payments or specific rights over the property.
These are some of the different kinds of Altcoins that exist in the market. One important thing to note is that these are merely loose classifications of various tokens into groups.
A particular Altcoin could fit into more than one category or description and can be identified in both categories.
An example of such an instance would be when a governance token is considered a utility token for the governance utility that the token provides in its environment. Understanding this will help to avoid any further confusion over this topic.
Let us now look at some of the differences between Bitcoins and Altcoins that help to distinguish between them both in the section below.
The key differences between Bitcoin and Altcoins
These are some of the differentiating factors between Bitcoin and Altcoin.
Single entity: Bitcoin is known as a single token entity in a single blockchain network whereas Altcoin is by nature a term that is used to identify all the alternative tokens that are not Bitcoin.
Market control: When looking at market control and dominance Bitcoin wins the segment for having the largest market share over altcoin. Bitcoins are more established and have a lot of control over the cryptocurrency market
Acceptance: When looking at the acceptance of both Bitcoin and Altcoins we can find that Bitcoin is by far considered the mainstream cryptocurrency token and thus is more widely accepted when compared to most other Altcoins.
Diversity: Between Bitcoin and Altcoin the one that stands on top for having a more diverse range of products and service offerings is Altcoins. Its wider spread over multiple services gives the coin more access to more diverse projects.
Decentralization: Since Bitcoin is operated on a decentralized network the control over the coin and its network is in the hands of the wider market. This means that when compared to a lot of the Altcoins Bitcoins stand as a much more transparent network.
These are a few of the features that differentiate between Altcoins and Bitcoin.
Let us now look at what makes Altcoins important in the crypto market.
What makes Altcoins important?
These are the reasons why altcoins are important:
Increased options
The most important reason why altcoins are valued is due to the fact that they provide an alternative to Bitcoin. These coins add more variety and liquidity to the cryptocurrency ecosystem.
Helps in diversification
Altcoins open up more choices for the investor to choose from through a variety of options. This means that Altcoins can help the investor in diversifying their investment portfolio.
Reduces hindrances
With the increased number of choices, an investor can choose a coin based on his own liking and needs. This means that one need not be limited by the functionality offered by a single coin but rather they can choose whichever coin offers them their required utility.
More innovation
Altcoins can have their backing through a number of innovative ventures. These ventures can offer different kinds of innovative services. These investors can subscribe to these services by the purchase of the coins that they offer.
Let us now summarise all the details that we have looked at and make our final remarks on the topic.
Final Thoughts
After looking at all these distinct characteristics and features of Altcoins we can say that Altcoins definitely deserve its own place in the crypto world.
Altcoins deserve special recognition for standing as a balancing force in a market that was dominated by Bitcoin.
Weighing the pros and cons of each coin would seem like a waste of time as both of them help to fulfill the different needs of their investors. Thus, everyone must give these two kinds of coins equal respect and recognition which they rightfully deserve.
